Contents

• Market Condition

• Company Dynamics

• Financial Results

• E-commerce

• Regulatory Compliance

Market Condition

1. After aspartame sweetener was classified as 'possibly carcinogenic to humans' (Group 2B) by the International Agency for Research on Cancer, China National Center for Food Safety Risk Assessment, in collaboration with the National Cancer Center, conducted a safety assessment. According to the evaluation result, the proper use of aspartame in accordance with China's existing standards and regulations is sure to be safe. More information on ChemLinked.

2. According to Nielsen, the Chinese fast-moving consumer goods (FMCG) market showed sustained recovery in May. But there were significant changes in the offline channels. Large supermarkets experienced a further decline in market share, while grocery stores and convenience stores saw substantial growth. Notably, convenience stores had double-digit growth each month from March to May. Regarding product categories, beverages remained strong with a growth of 13% YoY in May, reaching the levels in the same period in 2021. During April and May, the top five beverage manufacturers altogether held over 50% of the overall market share, indicating their dominant position in the industry.

3. The 2023 Children Baby Maternity Expo (CBME) showcased two trends in the infant formula market. Firstly, brands are focusing on growth opportunities in more segmented categories, like kids' formula and formula for special medical purposes. Secondly, brands are expanding their product offerings to cover family nutrition for a wider range of age groups.

4. In the first half of 2023, China's infant formula imports totaled around 141,100 tons, with a year-on-year (YoY) increase of 12.2%. Imports in March were the highest, rising by 47.1% YoY. However, imports declined in May and June. In particular, June saw a 39% drop YoY. The decline may be due to the implementation of China's new national standard for infant formula, restricting non-registered imports.

Notes:

• GB 10765-2021 National Food Safety Standard Infant Formula

• GB 10766-2021 National Food Safety Standard Older Infant Formula

• GB 10767-2021 National Food Safety Standard Young Children Formula

5. With the first batch of durian trees in China now starting to bear fruit, locally grown durians are expected to enter the market. As a country with significant demand for durians, China has heavily relied on imports of this fruit. The introduction of domestically grown durians is expected to foster a healthy growth of the durian industry in China

Company Dynamics

1. New Zealand dairy company Maui, which specializes in the sheep milk industry, has entered into a strategic partnership with the premium Chinese ice cream brand Zhongxuegao (also known as Chicecream). They are jointly developing pre-packaged food products with sheep milk as the core ingredient and have launched a brand new sheep milk ice cream recently. According to Maui, with the collaboration with Zhongxuegao as the beginning, the company plans to collaborate with more Chinese dairy companies in the future to develop a wider range of innovative sheep milk products.

2. Australian infant formula company Bubs has announced its plan to pursue a multi-channel strategy in the Chinese market, with a strong focus on their highly competitive product categories: goat milk infant formula and adult milk powder. Currently, Bubs primarily enters the Chinese market through cross-border e-commerce (CBEC) channels. Therefore, they are considering promoting its registration application with the China State Administration for Market Regulation (SAMR) to obtain multi-channel market access.

3. Mengniu has launched "Thick Cow Milk" dairy beverage targeting the B-end dairy raw materials market in China. As the market of freshly brewed coffee and innovative tea beverages continues to grow and evolve with constant product innovations, the demand for dairy products for mixing with coffee and tea has also increased. Companies like Oatly and Freenow has established a strong foothold in the B-end channels with their flagship products, oat milk and thick coconut milk. Recognizing the huge potential in this segment, leading dairy company like Nestlé, Yili, Mengniu, and New Hope, have all expanded their presence in this segment to tap into new growth opportunities.

4. H&H Group reaffirmed its focus on "premium nutrition" at the 2023 Global Partner Annual Meeting. Biostime, its baby nutrition and care brand, is committed to deepening brand development through efforts in new national-standard infant formula and nourishment products. Swisse, the adult nutrition and care brand, aims to strengthen its "1+3" brand matrix by managing the main brand Swisse and side brands Swisse PLUS, Swisse Me, and Little Swisse. Solid Gold, the pet nutrition and care brand, plans to expand its product category to include dry pet food, wet pet food, pet snacks, and pet nutritional supplements, catering to the growing demand for refined pet feeding.

5. BIXBI, a US high-end pet food brand renowned for its minimalist formulas and natural nutrition, has recently launched a store on Tmall Global. BIXBI plans to establish partnerships with more pet food distributors and collaborate with professional pet medical institutions to offer comprehensive pet care and nutrition services.

6. Mars Wrigley's brand M&M'S has introduced a new "degradable composite paper packaging" for its 40g milk chocolate packets. This packaging is designed to degrade over 90% within 6 months under industrial composting conditions. Previously, Mars Wrigley launched the rPET packaging for its chocolate brand Cuixiangmi, which was expected to save 36 ton of virgin plastic each year. As part of its 2023 sustainability goals, Mars Wrigley China aims to reduce its annual use of virgin plastics by 300 tons.

7. Yili pioneers in separating the freeze-dried tea powder and water in its Inikin instant tea product, to make the tea powder drop into the water until the cap is opened. This innovation addresses the loss of tea flavor commonly seen in traditional tea products on store shelves, marking a significant advancement in China's ready-to-drink tea market.

Financial Results

E-commerce

In the first half of 2023, the sales of dairy products on Douyin and Kuaishou platforms have surged by 75.82% YoY, with particularly significant growth observed in February, March, and May, all surpassing 100%. Among the various dairy product categories, white milk remains the largest segment, followed by milk powder and yogurt ranking second and third, respectively. Notably, the milk powder category experienced the fastest growth of 120% YoY. Regarding consumer profile, consumers aged between 18 and 35 constitute over 50% of the consumer base. To be more specific, the age group of 25-30 accounts for 29.81%, followed by 31-35 and 18-24, accounting for 23.72% and 21.97% respectively. Elder consumers tend to favor milk powder products, while younger consumers show a stronger preference for other dairy products.

Regulatory Compliance

1. On July 10, 2023, State Administration for Market Regulation (SAMR) unveiled the updated Administrative Measures for Registration of Infant and Young Children Milk Powder Formula Recipes, replacing the 2016 version. Major revisions include the definition of situations not approved for registration, labels, on-site inspection requirements, and measures to optimize business environment. The new version will come into force on October 1, 2023. More detailed information on ChemLinked.

2. ChemLinked consistently updates the latest infant formula recipes registered according to China's new GB standards, and offers in-depth analysis covering countries of manufacturers, dairy groups, and milk species. More detailed information on ChemLinked.

3. According to Center for Evaluation under China's State Administration for Market Regulation (SAMR), 16 imported health food products have been granted filing certificates in H1 2023, which enables them to enter the Chinese market through common trade channels. ChemLinked performed an in-depth analysis of the 16 products, scrutinizing the filing status over the years and assessing recent notable regulatory revisions pertaining to health food. More information on ChemLinked.